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European bonds retreat as rate rise looms

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Date: Wednesday 02 Jul 2008

LONDON (ShareCast) - European bonds fell as rising producer prices and European Central Bank president Jean-Claude Trichet’s warning on inflation made the prospect of an interest rate rise tomorrow more likely.

Euro-zone factory-gate prices rose the most over the past year since they were first recorded in 1990, the European Union statistics body said.

“We central banks have a big responsibility,” the German Die Zeit newspaper quoted the ECB president as saying.

“If we're not decisive, there's a risk of inflation exploding. If we act in a decisive way, we can master the situation.”

The yield on Germany’s benchmark 10-year bond rose by 4 basis points to 4.65%.

Over here, gilts rose as more miserable news for the UK retailers lessened the likelihood the Bank of England will raise rates.

Shares fell across the UK retail sector led by Marks and Spencer after the clothes and food retailer reported a fall in second quarter like-for-like sales.

The yield on a 10-year gilt fell 2 basis points to 5.13%.

US treasuries advanced after the prospect of a US interest rate rise receded following a report showing US companies shed 79,000 jobs in June, up from 25,000 in May.

The yield on a 10-year US treasury fell four basis points to 3.96%.

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